Matt Yglesias

Endgame

I’m all about them:

— Troops have no problem serving with gay soldiers.

— Why Mike Konczal is a climate hawk.

— Jefferson, Hamilton, and today’s American progressives.

— Jonah Goldberg, well-known critic of liberal fascism, wonders: “Why wasn’t Assange garroted in his hotel room years ago?”

— Should we legislate against street harassment?

Sleigh Bells, “Rill Rill”

The Party of Medicare

Excellent article from Shikha Dalmia about the Party of Medicare:

For starters, polls by the New York Times and Bloomberg have found that although a vast majority of Tea Party supporters favor smaller government, they don’t want cuts in their Medicare or Social Security, a contradiction perfectly captured in a sign at a Tea Party rally: “Keep the Guvmint out of my Medicare.” Indeed, the Bloomberg poll discovered that even though Tea Partiers dislike ObamaCare, they want Medicare to offer more drug benefits and the government to force insurance companies to cover pre-existing conditions. [...]

Kentucky’s Rand Paul, who is running as an uncompromising apostle of limited government and free markets, has pulled the most distressing switcheroo of them all. A doctor himself, he denounced Medicare as socialized medicine. Yet he has balked at the idea of cutting physician salaries, even though American physicians make twice as much as doctors in OECD countries. Why? Because their cartel, the American Medical Association, both restricts the supply of physicians through insanely restrictive licensure requirements and controls the Medicare board that determines physician compensation, as the Wall Street Journal reported this week. Yet, Paul now maintains: “Physicians should be allowed to make a comfortable living.” (But he is just being fair – not pleading for his special interest of course!) Likewise, after calling Social Security a Ponzi scheme, Paul is now talking less about reforming it and more about protecting it for those now reaching retirement age.

I think the biggest thing to watch for is a sharp pivot toward a strategy of pure generational warfare. Pay out 100% of promised benefits to the over 55 crowd and massively slash benefits for people under 40.

The Folly of Empire

MG Siegler has an interesting TechCrunch item about Microsoft’s eye-popping losses in its online business:

Microsoft released their Q1 2011 earnings today. The results were very good except for one very big blemish: the Online Division. Last quarter, the division lost $560 million for Microsoft. That’s better than the previous quarter when it lost a staggering $696 million, but it’s much worse than a year ago, when it lost $477 million. In the past year, Microsoft has lost well over $2 billion from the division.

Let me repeat that: 1 year, a $2 billion loss.

Obviously, any startup that did that would have long since gone under — with that kind of burn rate, they probably would have gotten the plug pulled a few weeks into existence no matter how well-funded they were. But Microsoft keeps pumping money into the division. And they have to. Because even they realize it’s the future.

There’s an interesting divergence here between the perspective of Microsoft qua institution and Microsoft as a cooperative enterprise undertaken for the benefit of its shareholders. The conventional wisdom is that Microsoft needs to expand beyond its super-profitable core businesses because “[t]he web is making Windows (and every operating system) less vital, while at the same time coming up with free and/or cheap tools to replace the relatively expensive Office.” Therefore, the smart strategy for Microsoft is to take the giant profit margins of Office and Windows and plow them into new ventures.

An alternative approach would be to just say “we’ve got a great core business here that’s still great today and may or may not be obsolete in the future, so we’re just going to keep doing what we do well and pay out giant dividends.”

In practice that never happens. As firms like Microsoft mature, they do start paying dividends, but they never really go “all in.” Psychologically, successful business executives are bound to regard themselves as above-average businessmen who can maximize shareholder value by keeping profits in-house. And from a talent-retention/recruitment perspective it would probably seem demoralizing to just say “eh, we’re giving up on growth.” And of course it’s more fun to be the CEO of a large growing firm that’s a vital player on the cutting edges of technology than to preside over a stagnant-though-wealthy mechanism for funneling billions of dollars from corporate IT departments to shareholders. And in practice, the logistics of hostile takeovers are horrible and they’re rarely attempted.

And Microsoft is by no means unusual in this regard. Google is very aggressively pushing into new businesses instead of sitting on its existing cash cows, and Apple has a famously gigantic cash stockpile being presumably conserved for some nebulous future M&A activity.

The Disastrous Health Care Phase-in

It seems to me that if you want to write about a health care-related political error, the thing to focus on is the exquisitely slow pace at which the Affordable Care Act will be phased on. If you’re an ACA-supporter, which presumably the people who voted “yes” on the program are, you have to believe that this is a good program that, when in place, people will like. But since the main benefits won’t exist until 2014, that means ACA proponents need to go through the 2010 and 2012 cycles with few concrete benefits to point to.

What’s more, the phase-in is so delayed for pretty crassly political reasons—it made the short-term CBO score look better. So the moderate members of congress and White House operatives who put so much weight on that CBO score really ought to be looking around the country and asking themselves how much benefit their reaping from that score today? As best I can tell, no benefit whatsoever. By contrast, members with a program to point to could say “hey, this guy wants to take your program away!” At a minimum, folks who like the ACA might have more morale if it were actually in place.

The Case for a King

I agree with Jon Chait about the “trouble with presidential dignity”:

On the contrary, I think the office of the president has too much dignity. The president is a citizen who serves the public. It is in the interest of the president to make himself into something exalted, a national father figure and symbol of the government. But the public has no interest in this function, which, indeed, can take on monarchical trappings with an insidious anti-democratic undertone. (It’s a little disturbing when people who see the president salute — a military signal that suggests subordination.)

Obviously, I don’t want to see presidents cutting their own rap videos or jumping into the ring with professional wrestlers. But at the moment, and for the foreseeable future, out problem is not too little presidential dignity but too much.

In some ways I would say the whole thing highlights a problem with republican government that wasn’t appreciated or foreseeable in the late 18th century. Since that time, many democracies—from Canada to Spain to Sweden and beyond—have hit upon the idea of denying the monarchical glow to their head of government by keeping the monarch around but denuding him/her of governing authority. Some countries, such as Germany, India, and Israel, try to have a powerless “president” fill this role but I think it doesn’t really work. Such people have too much democratic legitimacy and too little pomp and circumstance to adequately fill the king role.

So does America need a king and queen with the President demoted to a more drab functional role? I say: Perhaps. At a minimum, America’s Next First Couple could be the world’s greatest reality TV show.

My preferred candidate for Queen would be Princess Märtha-Louise of Norway who’s basically out of the running for succession there (fourth in line) and who conveniently already lives in the USA. She’s author of the children’s book Why Kings And Queens Don’t Wear Crowns, and the Norwegian royal family is one of the youngest in Europe. Märtha-Louise’s great-grandfather was born in Denmark and elected King of Norway in 1905.

A New Hope

(cc photo by futureatlas)

Noam Scheiber describes a long ball move the White House could deploy to get around congressional obstruction of efforts to fix the economy. Fannie Mae and Freddie Mac own an awful lot of mortgages. And the executive branch owns Fannie Mae and Freddie Mac. Fannie and Freddie can simply write down the principal on the loans they’re owed—bailout—and then Treasury can “loan” them the money to cover the loss knowing full well it’ll never be repayed:

Now it’s true that congressional Republicans would never go for this. (You can imagine the White House pitch to GOP leaders: We hear what you’re saying about another $100 billion in spending. How bout $1 trillion for mortgage-debt relief?) The good news is that the administration could do it without congressional approval. Fannie Mae and Freddie Mac basically have an unlimited credit line with the U.S. Treasury, and the government has controlled Fannie and Freddie since it seized them in 2008. The mechanics would be hairy: How do you decide which mortgages to write-down? Do you only write-down mortgages Fannie and Freddie already own, or do you have Fannie and Freddie go out and buy new ones? If it’s the latter, do Fannie and Freddie eat the whole cost themselves, or do they split the losses with banks? Etc., etc. But the bottom line is that it can be done.

The far bigger obstacle is the politics. Suffice it to say, if you thought the bank bailout and the stimulus went down badly, then watch how the Tea Partiers react if the government spends a $1 trillion without so much as asking Congress. This is obviously why the administration quickly shot down rumors of a homeowner bailout when they cropped up this summer. And it’s probably why it will never happen. But before you sneer, ask yourself the following: Will Barack Obama be in better shape two years from now with the economy humming along and an apoplectic Tea Party movement, or with 9 percent unemployment and a slightly less apoplectic Tea Party movement?

I would go stronger than Scheiber. If the White House does this in 2011 it will have zero impact on the 2012 Presidential election. And it will have zero impact on the 2012 Senate elections. And it will have zero impact on the 2012 House elections. The evidence is overwhelming that absolutely nothing done in 2011 will impact 2012 elections. Conversely, the rate of real personal disposable income growth in 2012 will have a giant impact on the 2012 Presidential elections and a meaningful impact on the House and Senate elections. Which is to say that if the economic team thinks it can draw up a feasible plan here that will boost the economy they should absolutely do it.

I note that the substantive problem here is that if the US government deliberates takes on a trillion dollars in additional debt, that may lead the interest rate the US government needs to pay on its debt to rise. Rising interest rates on treasuries will increase interest rates throughout the economy and hurt growth. This is the dread “crowding out,” but it could be easily prevented by quantitative easing from the Fed. So the question is not whether the public would stand for this (they wouldn’t, but they would get over it quickly) it’s whether Ben Bernanke and the FOMC would stand for it. With inflation well below target and huge levels of unemployment and idle capacity they should stand ready to support this action but they very possibly won’t.

Note that when FDR was fighting the Depression he found the need to exploit all kinds of weird legal loopholes to take unilateral action.

The biggest problem with this idea, as far as I can tell, is that our policy guys here at CAP have some real doubts as to whether the idea is really as legal as Scheiber says. The proposal seems to have originated as a kind of paranoid “this is Obama’s secret plan” kind of thing, rather than as an actual proposal, and there are real doubts as to whether the Housing and Economic Recovery Act of 2008 actually authorizes this.

I Am Rankled By Ben Bernanke’s Reluctance to Be More Outspoken

“Bernanke’s Reluctance to Speak Out Rankles Some”, reports Sewell Chan in the New York Times. And after reading the article, I too am among the ranks of the rankled:

The Federal Reserve is all but certain next week to begin a multibillion-dollar effort to coax the recovery along, but privately, Ben S. Bernanke, the chairman, worries that more is needed to turn the sluggish economy around and revive employment.

He believes that without the Obama administration’s $787 billion stimulus program, the nation would have been worse off, and that Congress needs to continue to prop up the economy in the short run. He agrees that fiscal measures to support the recovery would probably make the Fed’s unconventional monetary policy more potent.

But Mr. Bernanke has been reluctant to prominently voice those views, which were gleaned from testimony, speeches and interviews with people close to him over the last several months. His predecessor, Alan Greenspan, did not display such hesitation, advocating for the Bush tax cuts of 2001 and 2003.

So, yes, I’m rankled. And I’m especially rankled because I think Bernanke is making his own life harder than it needs to be with this approach. It’s clear that one reason some people are voicing skepticism of unorthodox monetary measures is that they see advocacy for quantitative easing as undermining the case for fiscal policy. But Bernanke believes, as do I, that QE and fiscal expansion go best together. So if he would say that clearly he would have, at a minimum, some more allies out there.

In general, I think the reluctance of fiscal and monetary authorities to talk to the public about the interplay between the two has been very costly to the political class’s understanding of the situation. For example in her March 2009 speech on “Lessons from the Great Depression” (PDF), Christina Romer first explained that monetary expansion was absolutely critical to ending the Depression and then said “A key rule of my current job is that I do not comment on Federal Reserve policy.” But given that, “In the same paper where I said fiscal policy was not key in the recovery from the Great Depression, I argued that monetary expansion was very useful” it’s obviously very difficult to draw Romeresque lessons about the Depression that involve commenting on the Fed.

Pell Grants Can’t Save America From Ever-Higher College Tuition Costs

Here’s a sobering chart from Ben Miller showing the limited impact of huge increases in Pell Grant generosity on the actual affordability of higher education:

The red and yellow lines are the Pell grant’s buying power—what percent of a sector’s average tuition and fees and room and board are covered by a maximum Pell Grant. And what these lines show should be incredibly frustrating. In exchange for substantial growth in the program costs, Pell’s buying power at nonprofit four-year institutions has stayed at about 15 percent; at public institutions it declined from 39 percent to 35 percent. If you extend the window back to 1990, the picture is even worse–the buying power of the Pell Grant dropped 10 percentage points at public four-year colleges. Maybe the picture would be slightly better if it could take into account multiple Pell awards for a student, but it wouldn’t get back up to the 45 percent level.

At public institutions, this in part reflects state legislatures’ tendency to disinvest in higher education. That, in turn, is in part driven by shortsightedness and in part driven by rising health care costs tending to squeeze out appropriations for all other functions. At private schools, however, it simply reflects the fact that as currently structured American institutions of higher education have no real incentive to expend energy on improving value. Sometimes colleges do find ways to reduce the cost of providing education, but even when they do so they don’t return the savings to customers in the form of lower prices, they just find new things to spend the money on.

Meanwhile, as Miller says the rate of increase in Pell Grants sparked by the 2006 election can’t continue at this pace. Something more fundamental needs to be done to transform the system.

McDonald’s Telling Employees How to Vote in Ohio

I remember when we were debating campaign finance laws around the turn of the millenium and the standard right-of-center view was that these were unfair restrictions on free speech and disclosure alone would be good enough. Then came Citizens United and the DISCLOSE Act and suddenly disclosure itself was an unbearable curtailment of free speech. Now I’m reading about this story where a McDonald’s in Ohio is sending notes in its employees’ paychecks telling them who to vote for:

I assume that this, too, is constitutionally protected free speech.

Meanwhile, looking at everything from the conduct of the US Chamber of Commerce to this McDonald’s franchise, I’m continually gobsmacked by the number of business executives in the United States who haven’t read Tim Carney’s book and don’t realize that Obama is just a patsy for the big business agenda. Maybe the White House should buy a free copy of Obamanomics for every corporate headquarters in the country.

Deadweight Loss

Katy Perry in Berlin

Alex Tabarrok takes a stab at popularizing the concept of “deadweight loss.” It’s an important one, but I think it’s unfortunate that his chosen example draws specifically from the realm of excise taxes where I think the general spirit of the point (“taxes impose losses”) is pretty well-understood.

What about the case of unauthorized downloading of music files. Consider Katy Perry’s “California Gurls”. This tune costs $1.29 on iTunes. At that price, some people will buy it. Others will refuse. You might refuse because you hate Katy Perry and hate the idea of owning one of her songs. But say you’re not a hater. You’re just a skeptic and a cheapskate. You’d gladly pay a dime for the song were that an option, and since the marginal cost of distribution is basically zero it would be profitable to sell you the song for a dime. But it’s not an option, since the overal profit-maximizing price is $1.29. And say there are a million people like you out there. That adds up to $100,000 in deadweight loss—the value of the transactions blocked by copyright protection.

Of course in the real world many of those million people will just download a copy of the song for free. Some would like you to believe that this is an action that should be analogized to hijacking a ship, threatening to murder its crew, and then stealing the ship’s cargo. But unlike piracy, unauthorized copying can often be highly welfare-enhancing because of deadweight loss. Similarly, even though everyone seems to hate price discrimination, deadweight loss means it can be welfare enhancing as well since more precisely tailored pricing lets firms give some folks a discount.

Welcome to the Recovery

Q3 GDP grew at a 2 percent annual rate, which would be okay performance for a full employment economy but is totally insufficient to mobilize the huge number of idle workers today. Here’s the shape of the recession and “recovery” in both real and nominal terms:

As you can see, we’re still below the peak level of real output attained in Q4 of 2007. But in the intervening years, some new technologies have been invented, some firms have improved their business processes, and the size of the population has grown. We should be able to produce considerably more at the end of 2010 than we were producing at the end of 2007. That we’re failing to do so represents a massive failure of the American elite.

The Modular and the Interdependent

This is a post about smartphones, but it seems to be that Horace Dediu’s framing of modular vs interdependent systems for different kinds of situations has a broad applicability:

Interdependent systems often lead to higher performance than modular systems because the system is optimized. Engineers can iterate more rapidly to squeeze the maximum performance from sub-systems by connecting them in ways that makes the best complete solution. In contrast, modular systems often lead to lower costs because there are a greater number of suppliers, since interfaces are standardized and pieces can be swapped in and out.

Interdependency is often required to raise the performance of a new solution. In contrast, modularity is required to lower the cost of an overserving solution.

Continued interdependency often drives the performance of that solution beyond that which the target market is willing to pay for. The target market then frequently turns to modular solutions which, at that point, often offer good enough performance along with modularity-driven advantages such as lower cost, convenience, or other benefits.

This puts me in the mind of higher education in the United States. The college experience is a very full-service, highly integrated kind of thing. It’s part school, part sleepaway camp, part job-placement service. And it’s ungodly expensive. It’s possible that a this point in our historical development we could use more modularity. That might allow us to do a better job of holding down costs in some aspects of what needs to be done, and also allow many students to avoid overpurchasing services they don’t especially want or need.

Endgame

Une presence inconnue:

— Think tanking is hard.

— China builds world’s most super super-computer.

— All about QE2.

— The scale of QE we need is considerably above what the Fed seems to be contemplating.

— There are huge impediments to the use of RMB as a reserve currency.

The eight years I spent studying French in school have very little practical purpose, but ability to understand the lyrics to Placebo’s “Mars Landing Party” is among them.

The Downward Spiral in Greece

(cc photo by simon_music)

Recession leads to deficits lead to austerity leads to worse growth and bigger deficits:

With economic conditions weaker than expected, tax revenue is coming up short of projections in parts of Europe. As a result, countries struggling with high deficits are now confronting the prospect that they will miss the budget deficit targets forced upon them this year by impatient bond investors.

Greece, for one, looks as if it will run a budget deficit for 2010 greater than the 8.1 percent of gross domestic product it agreed to as part of a rescue package from the International Monetary Fund and the European Union that amounted to more than $150 billion, according to a person briefed on the matter but not authorized to speak about it.

Again, what would normally happen to a Greece-sized country with Greek-sized problems is that the value of its currency would decline. Everyone would, consequently, become quite a lot poorer in “real” terms but the pain would be spread and unemployment wouldn’t necessarily skyrocket. The newly poor country would be cheap to visit, its exports would be priced competitively, and import-competing industries would remain in great shape. Things might either stabilize like that, or else structural reforms could be undertaken that lay the groundwork for growth.

Thanks to the Euro, none of that’s possible and it’s not at all clear to me what the endgame here really is. For understandable reasons, German (and Austrian, Dutch, etc.) taxpayers don’t want to bail out the government of Greece. And also for understandable reasons, German policymakers prefer the European Central Bank to run a monetary policy that’s appropriate for Germany rather than one that’s appropriate for Greece. So Greece is stuck on a path to default.

The Point of Winning Elections is to Pass Laws

Both Ezra Klein and my colleague Igor Volsky have some worthy thoughts on the question of how much blame the Affordable Care Act deserves for the Democrats’ current political predicament. I would, however, add the obvious point that passing important laws is the reason you try to win elections in the first place so I don’t think “you might lose the next election” is ever a very good reason to avoid passing one.

If you want to look at a really poor use of a congressional majority, try to recall the 109th Congress of 2005-2006. You probably can’t remember it because they didn’t do anything. And the Republicans lost their majority anyway. Or maybe they lost their majority because they didn’t do anything. Either way, they didn’t do anything and the nature of political majorities is that they all vanish sooner or later. Suppose they’d done something better and had held on for two more years to do nothing as the 110th Congress. What would have happened then? Well, they would have lost in 2008, right? So . . . so what?

Now obviously you don’t want to risk a congressional majority over something trivial. But the Affordable Care Act is not a trivial law. It’s one of the most important laws of the past thirty years. So then the question becomes, was it important in a good way? I think it was. And that’s the job of a congressional majority—to pass important bills that change the world for the better. I think the 111th Congress did a fair amount of that. I’m a climate hawk and if I had to pick one, I would have rather seen an energy bill than a health care bill. But it wasn’t in the cards. So here we are, and I don’t think anyone has anything to be ashamed of.

The Failure of the Lawyers’ Cartel

In some ways, I think the most interesting part of Annie Lowrey’s article on the apparent oversupply of people with JDs is the aside about medical schools:

The demand for lawyers has fallen off a cliff, both due to the short-term crisis of the recession and long-term changes to the industry, and is only starting to rebound. The lawyers that do have jobs are making less than they used to. At the same time, universities seeking revenue have tacked on law schools, minting more lawyers every year.

That has caused some concern among lawyers who think the accrediting organization, the American Bar Association, is doing the profession a disservice by approving so many new schools. (Contrast that with medical schools. They come with much higher startup costs and tend not to be money-makers. Relatively few students get medical degrees every year, and demand far outstrips supply.)

Whenever I talk to people who are considering applying to law school, I always advise them not to do it. Just keep working or go to business school unless you have some very specific passion for lawyering. The days when acquiring a JD as a kind of generic life plan made sense are over.

So that’s advice. But from a social point of view, the fact that the lawyers’ cartel has failed to erect giant barriers to entry is a good thing. Falling real wages for lawyers is an egalitarian, pro-growth measure. And lawyers still earn above-average incomes—it’s not like people are being forced into penury. These are trends that are making legal services more affordable for productive businesses and improving the quality of legal talent the public sector is able to attract without adding to taxpayers’ burden.

Contrast this, as Lowrey urges us to, with the medical school situation. Here the American Medical Association is succeeding where the ABA fails. There’s no evidence that American doctors are wildly more competent than Finnish doctors but they sure do get paid more. Indeed, they’re paid much more than doctors anyplace else in the world. That contributes to high health care costs, and low supply.

A Whale of a Cut

Item #2 on Eric Cantor’s YouCut list of programs he wants to terminate is the “Exchanges with Historic Whaling and Trading Partners Program” whose elimination would save $87.5 million over ten years.

Tad DeHaven subjects this to some appropriate derision, noting the less than earth-shattering implications of the reduction: “America is at a ‘critical crossroads’ and the GOP leadership is offering to cut whaling history subsidies? Congress is bankrupting the nation and the possible next GOP House majority leader – ‘never a details man’ – can’t even specify what he would cut in the budget.”

It’s actually worse than DeHaven realizes. Eliminating this program was already part of the Obama administration’s FY 2011 budget. There’s just nothing doing here.

Tax Cuts and Preference-Intensity

Larry Bartels consistently puts out some of the most interesting and journalistically relevant political science around, and now he’s doing some blogging for the polling site YouGov. I’m expecting great things. His debut is a brilliant explication of how it is that rescinding tax cuts for the wealthy can be a losing position even though a superficial read of the polls says it’s popular. About 11 percent want all the Bush tax cuts repealed (I’m in this group). Then 42 percent—including the median voter—support the President’s position, repeal the rich-people-only tax cuts but keep in place the across-the-board ones. Just 28 percent support the pro-rich people position.

But then there’s preference-intensity:

Even more importantly, the sizable minority of people who want the tax cuts for affluent taxpayers renewed seem to attach much more weight to this issue than the slim majority who want them to expire. In a statistical analysis taking separate account of prospective voters’ broader partisan attachments, those who support President Obama’s position on the tax cuts are only 6% more likely than those who are unsure about the issue to say they will vote for a Democratic House candidate. Even those who want to let all the tax cuts expire are only 9% more likely to vote Democratic. By comparison, those who want to keep the tax cuts for affluent taxpayers in place are 22% more likely to say they will vote for a Republican House candidate.

An even more lopsided difference appears in the impact of tax cut preferences on presidential approval. People who support President Obama’s position on this issue are only slightly more approving of his overall performance than those who are unsure, while those who want to renew all the tax cuts are moved about five times as far toward disapproving. Among political independents, a whopping 76% of those who want continued tax cuts for the rich say they strongly disapprove of the president’s performance; only 27% of those who support his proposal for selective extension of the tax cuts are equally disenchanted.

Some but by no means all of this is just part of the larger “enthusiasm gap” story. But the bigger picture point is that the people who favor tax cuts for the rich really care a lot about this issue. The people who don’t favor them aren’t nearly as committed. And in politics it’s often preference-intensity that matters most. The total absence of some kind of committed, high-intensity pro-revenue voting bloc is one of the most fundamental facts of post-Reagan politics.

Affordable Housing is Inexpensive Housing

(cc photo by sercasey)

If you flip back and forth between writing about the national economy and writing about urban issues, you quickly get a kind of whiplash about home prices. In one context, people want them to go up. In another context, everyone agrees that “affordable housing” is a vital need. And yet affordable housing is housing whose price is, by definition, low.

In other words, what Mark Kleiman said:

I’m also obviously unclear on the concept about housing prices overall. Again, I understand why banks and under-water homeowners want prices to go back up. But from a social perspective isn’t it obviously better for housing to be cheaper?

Similarly, I understand why a revival of home construction seems like a good idea to the construction industry, and why people worrying about having adequate demand to return to full employment are hoping for help from that sector. But I can’t see any good reason to want housing to take a larger, rather than a smaller, share of consumption and investment.

Like with commodity prices, I guess the bottom line is that you can’t draw conclusions purely from the change in price. If the economy revives and incomes go up, the price of housing will increase. But if a series of horrifying tornados destroys all the built structures in the state of Texas, that will also cause the price of housing to increase. Conversely if a neutron bomb hits Manhattan, it’ll open up a lot of affordable housing. The issue in all cases is “what’s actually happening here” rather than “are houses cheaper.”

But the core point, I think, is that it’s a kind of folly to think that the best way to deal with distressed mortgages is through efforts to prop up prices and somehow keep housing expensive. What’s needed is a process—cramdowns or the like—whereby we can readjust loan burdens downward to something more in line with reality. And more broadly what’s needed is fiscal and monetary expansion—up to and including helicopter drops—to bolster incomes across the board. The overly indebted will need to use bolstered income to pay what they owe, and those who are more fortunate will just buy more stuff. Presumably that will lead to an increase in nominal home prices, but that would be a consequence of growth rather than a cause of it.

Business and Its Friends Continue to Whine About Obama as Profits Soar

Every couple of weeks I resolve to remake myself as one of those pundits who writes about how one of the leading problems in the world is that people aren’t nice enough to incredibly rich businessmen. I could be the next Sebastian Mallaby! But then I read something one of my role models writes and, frankly, I get kind of mad.

So here’s John Gapper in the FT:

FT After enduring torments in George Orwell’s 1984, Winston Smith learnt to love Big Brother. After the midterm elections, which are also likely to be painful, Barack Obama should learn to love big business.

The US president, a former community organiser in Chicago whose formative professional experience was helping the dispossessed after steel companies and manufacturers left town, has never shown affection or sympathy for US multinationals. One of his favourite jabs at Republicans is that they seek tax breaks for corporations “to ship jobs overseas”.

Poor businessmen!

And here’s reality:

Profits have surged 62 percent from the start of 2009 to mid-2010, according to the Commerce Department. That is faster than any other year and a half in the Fabulous ’50s, the Go-Go ’60s or the booms under Presidents Ronald Reagan and Bill Clinton.

Under another president, especially a Republican president, the data on corporate profits would be envied. George W. Bush, who dedicated a good deal of his presidency to tax cuts aimed at boosting business profits, probably would have loved such results. It took Bush nearly four years to post the gains that Obama has managed in less than half the time.

You would think that hard-nosed businessmen would be sufficiently practical to realize that they’re doing well under president Obama and perhaps just stay quiet and enjoy counting their money. But no! They want to whine loudly in public about the fact that the president is saying mean things about them. Is the Fortune 500 being run by seven year-olds?

In substantive news, the rising profits are good news and highlight the need for higher inflation expectations. Firms are earning cash, which means they have the capacity to expand operations, which will reduce unemployment and raise incomes. But with the current depressed state of medium-term expectations there’s little reason to do so. Recent talk of Quantitative Easing is, however, already shifting investor thinking in pro-growth directions. The Fed needs to move forward boldly and clearly and stop worrying about mini golf. Businessmen need to worry about running their businesses.